CO-OPERATIVE BANKS (Syllabus: GS Paper 3 – Economy)

Context: The Reserve Bank of India canceled the licence of the City Co-operative Bank, Maharashtra for lacking adequate capital and earning prospects.

Co-operative Banks

• About: It refer to those financial institutions under the Banking System in India that operate on the principles of cooperation and mutual benefit for their members.

oThey belong to their members who are both the owners and customers of the bank.

• Basis of establishment: Co-operative banks are financial entities established on a co-operative basis and belonging to their members. 

oThe customers of a co-operative bank are also its owners.

oLike other banks, the cooperative banks are founded by collecting funds through shares, accept deposits and grant loans.

• Regulation: In India, they are registered under the Co-operative Societies Act of the State concerned or under the Multi-State Co-operative Societies Act, 2002.

oThey are regulated by the Reserve Bank of India (RBI).

oThey are governed as per the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1955.

• Classification Of Co-operative Banks: Divided into two categories which can further be subdivided:

oUrban Co-operative Banks: Operate in urban and semi-urban areas, catering mainly to small borrowers and businesses.

üCategorized into Scheduled Banks and Non-Scheduled Banks based on their regulatory status.

oRural Co-operative Banks: Focus on serving the financial needs of rural areas.

üDivided into two main categories:

üShort-Term Structures: Include State Cooperative Banks, District Cooperative Central Banks (DCCBs), and Primary Agricultural Credit Societies (PACS).

üLong-Term Structures: Include State Cooperative Agricultural and Rural Development Banks (SCARDBs) and Primary Cooperative Agricultural and Rural Development Banks (PCARDBs).